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Welcome to conflict tourism: how Chinese state firms are using the South China Sea

Analysts have tried to interpret China’s rejection of the UN arbitration on the South China Sea dispute from Beijing’s strategic and regional security policy perspectives. What is missing in all such analyses is the increasing role of Chinese state-owned enterprises (SOEs), some of which may even be complicating China’s position in the dispute.

But in addition to the defence industries, there are other less well known but active SOEs reaping benefits from the South China Sea disputes.

Cruising the disputed Paracel Islands

It is easy to understand that the Chinese defence industry has significantly benefited from the South China Sea disputes. The stock market offers a glimpse of its latest gains. In the weeks leading to the tribunal ruling, a few notable Chinese stocks experienced significant hikes in prices and trading volumes. For example, the shares of Beifang Daohang Technological Corporation, affiliated to China North Industries Group, rose by 8.8 per cent; China RACO, which specialises in satellite communication, rose by 6.6 per cent; and State China Shipping Corporation jumped 19.6 per cent between 24 June and 12 July.

Although the tourism industry may seem to be the unlikeliest candidate to experience growth in times of regional conflict and uncertainty, it is not the case for Chinese companies that offer tour services to the South China Sea.

Sun, surf and patriotism … life as a tourist cruising the South China Sea

On the day after the release of the arbitration ruling, two aircraft, chartered by China Southern Airlines and Hainan Airlines, both state-owned, departed from Haikou ( 海口 ) and landed on Mischief Reef and Subi Reef respectively. Pundits in China suggested their government may eventually come up with a plan in the future to utilise the tourism resources on the newly constructed artificial islands occupied by China in the South China Sea.

Chinese tourist companies had already started business in the Paracels. Coconut Fragrance Princess Cruise was introduced in 2012 by Hainan Strait Shipping, a local SOE, to promote tourism in the Paracel Islands, especially to All Wealth Island and Male Duck Island.

Initially, Princess Cruise made losses and was subsidised by the government. But its operational performance improved after Sanya ( 三亞 ) became the departing port in September 2014 and Yinyu or Observation Bank was added as a destination.

Such tourism operations are inevitably linked to nationalism. Tour activities include flag-raising and oath-taking ceremonies. It is believed that promoting travel resources bolsters China’s sovereignty and rights in the South China Sea. More than 10,000 Chinese tourists, touted as patriots, have visited the Paracel Islands. Such tours continue to be supported and welcomed by the general Chinese public, especially after the arbitration.

China to crack down on illegal tourism in Paracel Islands

The Chinese corporate players are developing an even stronger interest in the tourism resources in the South China Sea. In April 2016, China Cosco Shipping Corporation started a cruise company in partnership with two other national SOEs, China Travel Service Group, and China Communications and Constructions Corp (CCCC). Cosco is seeking opportunities to expand operations from the Paracels to Taiwan and other islands in the neighbouring countries, as part of a Maritime Silk Road cultural tour.

During an exhibition by China Nanhai Cruise, the party chairman and CEO of China Cosco, Xu Lirong, reiterated that tours to the South China Sea were part of the company’s development plan. He also emphasised that operating businesses along the “One Belt, One Road” route was a responsibility of Chinese SOEs.

China to hold military drills off Paracel Islands ahead of Hague court ruling

Besides developing a cruise terminal in Sanya Feng Huang Island about 330km from Woody Island, together with China Travel Service Group, the CCCC co-founded the Sanya International Cruise Development Company with the support of the Sanya municipal government in December 2015.

The fortunes of Chinese SOEs are linked to their double missions of making money and helping the nation achieve its socio-political objectives. This is apparent among the SOEs involved in the South China Sea. By including tourism in the South China Sea as one of China’s strategies, the development of civilian usage of the disputed territory has become a mandate for the SOEs.

In 2012, the government declared national marine zonings that essentially stipulated state support for the oceanic industry in the Spratly Islands, Macclesfield Bank, and Paracel Islands, and travel resources, especially on Woody Island.

Outcry after Chinese tourists pictured hunting rare sea creatures in disputed Paracel Islands

After the tribunal ruling, China is likely to continue to encourage its SOEs to invest in the South China Sea because Chinese decision makers believe the presence of SOEs enhances China’s sovereignty and maritime claims. The expansion of SOEs’ interests in the South China Sea, in turn, makes it more difficult for China to back off from its South China Sea claims or soften some of its positions.

Xue Gong is a senior analyst with the China Programme at the S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore